Accounts from Incomplete Records Class 11: Statement of Affairs Method

What Accounts from Incomplete Records is about

Weightage: This chapter is part of Unit 3, Financial Statements of Sole Proprietorship (Part B: Financial Accounting-II), which carries 24 of the 80 theory marks in the school annual exam together with Financial Statements - I and Financial Statements - II.Source: CBSE Accountancy (055) syllabus 2026-27, Class XI course structure, Unit 3 Financial Statements of Sole Proprietorship

Key concepts

Meaning of incomplete records

Accounting records that are not kept strictly by the double entry system are called incomplete records. Usually only a cash book and personal accounts of debtors and creditors are kept; real accounts (assets) and nominal accounts (expenses and incomes) are missing or partial. Some transactions are recorded on both sides, some on one side only, and some not at all.

It is often called the single entry system, though strictly it is not a system: it is an incomplete form of double entry, and the method of keeping records differs from one business to another. It is common among small traders, hawkers, small shops and professionals.

Worked example

A shopkeeper records only cash receipts and payments in a diary and keeps a list of customers who owe him money. Is this complete or incomplete records? Why?

Try it first, then show the solutionSolution

1. Only cash and personal records are kept
2. No accounts for sales, purchases, expenses or fixed assets exist, so both aspects of every transaction are not recorded

Answer: Incomplete records (single entry system).

Features of incomplete records

1. Only personal accounts and the cash book are usually kept; real and nominal accounts are often not maintained.
2. No uniformity: each business keeps records in its own way, so they cannot be compared.
3. Mixing of personal and business transactions: the owner's personal receipts and payments are often entered with business ones.
4. Depends on source documents: missing figures have to be found from vouchers, bank statements and memory.
5. Trial balance cannot be prepared, so arithmetical accuracy cannot be checked.
6. True profit or loss and true financial position cannot be found directly; profit can only be estimated.
7. Suitable mainly for small businesses: sole proprietors and small partnerships, not companies (which must keep double entry books by law).

Worked example

Why can a trial balance not be prepared from incomplete records?

Try it first, then show the solutionSolution

1. A trial balance lists balances of all ledger accounts
2. Under incomplete records, real and nominal accounts are missing and many entries are one-sided, so debits will not equal credits

Answer: Because all accounts are not kept and both aspects of every transaction are not recorded.

Reasons for keeping incomplete records

Why do small businesses keep incomplete records?

• Simplicity: no knowledge of double entry is needed; a person without accounting training can keep them.
• Low cost: no trained accountant or software is needed.
• Less time and effort: fewer books and fewer entries.
• Small size and few transactions: the owner knows most details personally.
• Owner's convenience: the owner mainly wants to know cash in hand and amounts due from and to others.
• Flexibility: records can be kept in any form that suits the business.

Worked example

Give two reasons why a roadside fruit seller is likely to keep incomplete records.

Try it first, then show the solutionSolution

1. Very few kinds of transactions and a small scale
2. Cannot afford an accountant and finds double entry unnecessary

Answer: Small scale and simplicity; low cost.

Limitations of incomplete records

1. Arithmetical accuracy cannot be checked, because there is no trial balance.
2. True profit or loss cannot be known: there is no Trading and P&L Account, so gross profit and individual expenses are unknown; only an estimate of total profit is possible.
3. Financial position is not reliable: assets are often listed from estimates or memory, so the statement of affairs is not a true Balance Sheet.
4. Not acceptable to tax authorities as proper books in most cases, and difficult to use for loans.
5. Frauds and errors are hard to detect, as there is no internal check.
6. Comparison is difficult with other years or other businesses.
7. Valuation of the business is difficult if it is to be sold or a partner admitted.

Worked example

A shop using incomplete records shows profit of ₹80,000 by comparing capitals. Can it say how much gross profit it made on its goods? Why?

Try it first, then show the solutionSolution

1. The statement of affairs method gives only the overall change in capital
2. Sales, purchases and expenses are not separately accounted, so a Trading Account cannot be prepared

Answer: No. Gross profit cannot be found; only total net profit is estimated.

Statement of affairs and how it differs from a Balance Sheet

A statement of affairs is a statement showing the assets and liabilities of a business on a date, prepared from incomplete records, with capital as the balancing figure (excess of assets over liabilities). It looks like a Balance Sheet.

Statement of Affairs of Ravi Kirana as at 1st April 2025

Liabilities	₹	Assets	₹
Creditors	40,000	Cash in hand	12,000
Outstanding rent	5,000	Cash at bank	38,000
Capital (balancing figure)	1,50,000	Stock	70,000
		Debtors	45,000
		Furniture	30,000
Total	1,95,000	Total	1,95,000

Basis	Statement of affairs	Balance Sheet
Records used	Incomplete records	Complete double entry books
Source of figures	Partly ledger balances, partly estimates and memory	Ledger balances
Capital	Balancing figure (assets − liabilities)	Taken from the capital account
Reliability	Less reliable	Reliable
Purpose	To find capital, and so profit	To show the financial position
Omissions	Assets or liabilities can be missed easily	Omissions are detected by the trial balance

Worked example

Assets of a business on 1st April 2025 are ₹1,95,000 and liabilities ₹45,000. Find the capital and say how it is shown.

Try it first, then show the solutionSolution

1. Capital = 1,95,000 − 45,000 = ₹1,50,000
2. Shown on the liabilities side of the statement of affairs as the balancing figure

Answer: ₹1,50,000 (balancing figure).

Ascertaining profit or loss by the statement of affairs method

Steps:
1. Prepare the opening statement of affairs to find opening capital.
2. Prepare the closing statement of affairs to find closing capital.
3. Adjust closing capital: add drawings (they reduced capital, but they are not a loss); deduct additional capital introduced (it increased capital, but it is not profit).
4. Profit or loss = Adjusted closing capital − Opening capital.
5. Make further adjustments, if given: depreciation, provision for doubtful debts, interest on capital (deduct); interest on drawings (add); outstanding expenses or income not already in the statements.

Formula: Profit (or loss) = Closing capital + Drawings − Additional capital − Opening capital

Statement of Affairs of Ravi Kirana as at 31st March 2026

Liabilities	₹	Assets	₹
Creditors	55,000	Cash in hand	15,000
Bank loan	20,000	Cash at bank	52,000
Outstanding rent	3,000	Stock	95,000
Capital (balancing figure)	2,24,000	Debtors	60,000
		Furniture	30,000
		Machinery (bought during the year)	50,000
Total	3,02,000	Total	3,02,000

Statement of Profit or Loss of Ravi Kirana for the year ended 31st March 2026

Particulars	₹
Capital at the end of the year (as per closing statement of affairs)	2,24,000
Add: Drawings (₹4,000 × 12)	48,000
	2,72,000
Less: Additional capital introduced	25,000
Adjusted capital at the end	2,47,000
Less: Capital at the beginning	1,50,000
Profit before adjustments	97,000
Less: Depreciation on furniture (10% of 30,000)	3,000
Less: Provision for doubtful debts (5% of 60,000)	3,000
Less: Interest on capital (6% of 1,50,000)	9,000
Add: Interest on drawings	1,300
Net profit for the year	83,300

Capital at the end after adjustments (check)

Particulars	₹
Opening capital	1,50,000
Add: Additional capital	25,000
Add: Interest on capital	9,000
Add: Net profit	83,300
Less: Drawings	48,000
Less: Interest on drawings	1,300
Closing capital	2,18,000

The closing capital after adjustments (₹2,18,000) equals the closing assets less depreciation and provision (₹2,96,000) minus liabilities (₹78,000), which confirms the working.

Worked example

Opening capital ₹1,20,000; closing capital ₹98,000; drawings ₹30,000; no additional capital. Find the profit or loss.

Try it first, then show the solutionSolution

1. Closing capital + drawings − additional capital = 98,000 + 30,000 − 0 = ₹1,28,000
2. Less opening capital: 1,28,000 − 1,20,000 = ₹8,000

Answer: Profit ₹8,000 (capital fell only because of drawings).

Accounts from Incomplete Records in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments
• Statement of Affairs: Opening and Closing Capital from Assets and Liabilities

Accounts from Incomplete Records: key facts

Capital from a statement of affairs

Capital = Total assets − Total liabilities (outside liabilities)

Balancing figure on the liabilities side.

Profit or loss

Profit = Closing capital + Drawings − Additional capital − Opening capital

A negative result is a loss.

Adjusted profit

Net profit = Profit as above − Depreciation − Provisions − Interest on capital + Interest on drawings (± other items)

Only adjustments not already reflected in the closing statement.

Missing opening capital

Opening capital = Closing capital + Drawings − Additional capital − Profit

Rearranged formula.

Missing drawings

Drawings = Opening capital + Additional capital + Profit − Closing capital

Rearranged formula.

Goods taken by the owner

Drawings include cash and goods taken for personal use

Add all of them back to closing capital.

How the school exam asks Accounts from Incomplete Records

The question patterns to expect, and the method that works for each.

Tricks to remember Accounts from Incomplete Records

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Profit formula: "C + D − A − O"

  "Cats Don't Always Obey": Closing capital + Drawings − Additional capital − Opening capital.

  Use it when: Every statement of affairs numerical.

• Features: "PUMA"

  Personal accounts and cash book only; Uniformity absent; Mixed personal and business items; Arithmetic cannot be checked (no trial balance).

  Use it when: Features of incomplete records.

• Statement of affairs vs Balance Sheet

  SOA: Some Of it Assumed; BS: Built from Sure ledger balances.

  Use it when: Distinctions.

Accounts from Incomplete Records: exam-level solved questions

Ordered from exam level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section E style)

Read the situation, then answer every part. In a school exam set on the board pattern this is a 4-mark question split into 1 + 1 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Accounts from Incomplete Records

The slips examiners see most often, and what to write instead.

• ✗Mistake: Deducting drawings from closing capital

  Drawings feel like a reduction.

  Wrong working

  Profit = 2,24,000 − 48,000 − 25,000 − 1,50,000

  Right working

  Profit = 2,24,000 + 48,000 − 25,000 − 1,50,000 = 97,000

  ✓Do this: Drawings already reduced closing capital; add them back, since they are not a loss.

  Usually costs: 2 marks; the answer flips.

• ✗Mistake: Forgetting additional capital

  It is mentioned in passing in the question.

  ✓Do this: New money from the owner raises capital without being profit; always deduct it.

  Usually costs: 1 mark.

• ✗Mistake: Leaving out outstanding expenses from the statement of affairs

  They are not "real" debts like creditors.

  ✓Do this: Outstanding expenses are liabilities; include them, or capital and profit will be overstated.

  Usually costs: 1 mark.

• ✗Mistake: Answering with the conversion method

  Older books teach both methods.

  ✓Do this: The 2026-27 CBSE syllabus excludes the conversion method; use the statement of affairs method only.

  Usually costs: Time, and marks if the asked method is not shown.

• ✗Mistake: Ignoring goods taken by the owner

  Only cash drawings are listed in the question.

  ✓Do this: Drawings include goods taken for personal use; add their value back too.

  Usually costs: 1 mark.

Practice questions on Accounts from Incomplete Records

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQExam level

   Single entry system is suitable for:
   (a) large companies
   (b) small sole traders
   (c) banks
   (d) government departments

   Hint

   Few transactions.

   Answer

   (b) small sole traders

2. Q2 · 1 mark · MCQExam level

   Under the statement of affairs method, drawings are:
   (a) deducted from closing capital
   (b) added to closing capital
   (c) added to opening capital
   (d) ignored

   Hint

   They reduced closing capital but are not a loss.

   Answer

   (b) added to closing capital

3. Q3 · 1 mark · Very short answerExam level

   Give any two features of incomplete records.

   Hint

   Which accounts are kept?

   Answer

   Only personal accounts and the cash book are kept; no trial balance can be prepared (also: no uniformity, personal and business items mixed).

4. Q4 · 3 marks · Short answerExam level

   State three limitations of incomplete records.

   Hint

   Accuracy, profit, tax.

   Answer

   (1) Arithmetical accuracy cannot be checked as no trial balance is prepared. (2) True profit cannot be found; only an estimate. (3) Not acceptable to tax authorities; frauds and errors are hard to detect.

5. Q5 · 3 marks · Short answerHarder exam level

   Opening capital ₹3,00,000; closing capital ₹3,45,000; drawings ₹60,000; additional capital ₹30,000. Find the profit or loss.

   Hint

   Use the formula.

   Answer

   3,45,000 + 60,000 − 30,000 − 3,00,000 = ₹75,000 profit.

6. Q6 · 3 marks · Short answerHarder exam level

   Prepare statements of affairs and find the profit: on 1st April 2025 assets ₹2,80,000, liabilities ₹60,000; on 31st March 2026 assets ₹3,40,000, liabilities ₹80,000; drawings ₹40,000; additional capital ₹15,000.

   Hint

   Capitals first.

   Answer

   Opening capital ₹2,20,000; closing ₹2,60,000. Profit = 2,60,000 + 40,000 − 15,000 − 2,20,000 = ₹65,000.

7. Q7 · 3 marks · Short answerHarder exam level

   Find the opening capital: closing capital ₹3,10,000; profit ₹72,000; drawings ₹36,000; additional capital ₹15,000.

   Hint

   Rearrange the formula.

   Answer

   Opening = 3,10,000 + 36,000 − 15,000 − 72,000 = ₹2,59,000.

8. Q8 · 4 marks · Short answerHarder exam level

   A trader's profit before adjustments is ₹1,20,000. Adjustments: depreciation on machinery ₹8,000; provision for doubtful debts ₹2,500; interest on capital ₹10,000; interest on drawings ₹1,500; outstanding salary not shown in the closing statement ₹4,000. Find the net profit.

   Hint

   All are deductions except interest on drawings.

   Answer

   1,20,000 − 8,000 − 2,500 − 10,000 + 1,500 − 4,000 = ₹97,000.

9. Q9 · 4 marks · Long answerHarder exam level

   Explain the steps in finding profit by the statement of affairs method.

   Hint

   Two statements, then adjustments.

   Answer

   (1) Prepare the opening statement of affairs; capital = assets − liabilities. (2) Prepare the closing statement of affairs. (3) Add drawings to closing capital and deduct additional capital. (4) Deduct opening capital to get profit or loss. (5) Adjust for depreciation, provisions, interest on capital and drawings, and other items.

10. Q10 · 4 marks · Long answerHarder exam level

    Explain why small businesses keep incomplete records, giving four reasons.

    Hint

    Simple, cheap, small.

    Answer

    (1) Simple: no knowledge of double entry needed. (2) Cheap: no accountant or software. (3) Few transactions, so the owner tracks most things personally. (4) Flexible: records in any convenient form; less time and effort.

11. Q11 · 3 marks · Short answerHarder exam level

    Suppose a hawker's capital fell from ₹50,000 to ₹42,000 during the year though he withdrew ₹1,500 a month and put in ₹5,000 from his savings. Did he make a profit or a loss, and how much?

    Hint

    Drawings ₹18,000.

    Answer

    42,000 + 18,000 − 5,000 − 50,000 = ₹5,000 profit; capital fell because drawings exceeded profit plus new capital.

12. Q12 · 4 marks · Long answerHOTS / competency

    Suppose a shopkeeper argues: "My capital grew by ₹50,000, so my profit is ₹50,000." Explain, with figures, why this may be wrong in two different ways.

    Hint

    Drawings and new money.

    Answer

    If he withdrew ₹30,000 during the year, profit is higher: 50,000 + 30,000 = ₹80,000. If he put in ₹20,000 of new money, profit is lower: 50,000 − 20,000 = ₹30,000. Both together: 50,000 + 30,000 − 20,000 = ₹60,000. Unrecorded depreciation or provisions would reduce it further.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.What is another name for incomplete records?Show answer

   Single entry system.

2. 2.What is a statement of affairs?Show answer

   A statement of assets and liabilities prepared from incomplete records, with capital as the balancing figure.

3. 3.Which method of finding profit is in the 2026-27 syllabus?Show answer

   The statement of affairs method only (conversion method excluded).

4. 4.Are drawings added or deducted from closing capital?Show answer

   Added.

5. 5.Is additional capital added or deducted?Show answer

   Deducted.

6. 6.Can a trial balance be prepared from incomplete records?Show answer

   No.

7. 7.Is interest on capital deducted from profit found by this method?Show answer

   Yes, if it is to be allowed.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Can you define incomplete records?
• ☐Can you list five features of incomplete records?
• ☐Can you give four reasons for keeping them?
• ☐Can you list five limitations?
• ☐Can you prepare a statement of affairs and find capital?
• ☐Can you distinguish a statement of affairs from a Balance Sheet?
• ☐Can you apply C + D − A − O?
• ☐Can you adjust profit for depreciation, provisions and interest?
• ☐Can you find missing drawings or opening capital?

Accounts from Incomplete Records: frequently asked questions